Pound to Mexican Peso, showing downside potential to 24.3446 target

 

Read about our forecast for the pound to peso pair, based on a round-up of fundamentals and chart indicators

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The news that Mexican Unemployment fell to a lower-than-expected 3.74% in March – from 4.15% in the February and below 3.90% consensus estimates, has further solidified a bullish outlook for the currency on the charts.

Further, recent news that Silver demand may outstrip supply could be music to Mexican ears, as is it could signal a follow-through in the upside breakout of the commodity witnessed in the previous week; silver, being of a major resource in Mexico, is a factor in the valuation of the peso.

Focusing on the charts, the very first thing the eye is drawn to on the monthly chart is the bearish shooting star candlestick, which augurs further downside for the pair on a long-term basis. It looks very much like this very long candlestick has punctuated the end to the up-trend in the pair, and is possibly heralding the birth of a new down-trend. Above-average-length shooting star candlesticks are normally reliable signals of substantial moves lower.

The MACD momentum indicator in the top bottom pane backs-up the bearish prognosis after topping and crossing its signal line and therefore providing a bearish ‘go-ahead’ confirmatory signal.

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Looking at the weekly provides a more detailed insight into activity and options for entry and exit.

The current correction has lasted 4 -weeks and corresponds with the pound’s recovery due to easing Brexit fears. Whilst it is possible this could continue higher, the bearish monthly chart and the string of falling weeks from the February 28 highs continue to shape the overall medium-term trend, which is arguably down.

The MACD indicator has moved below its zero-line, signalling a change in the trend from up to down, further supporting our bearish forecast. 

A break below the 24.5472 March lows, therefore, would provide a more definitive signal the bear trend was extending lower, and open the trap-door to a further run, targeting the S2 monthly pivot initially at 23.8717 (this is a provisional target as the monthly pivots will recalculate on May 1), but probably even lower.

Monthly pivots provide tough obstacles for exchange rates as traders often take up counter-trend positions at them, in the hope of profiting from a bounce and pull-back.

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